Tom Gaffney
Welcome to CBRE Real Talk. It's hard to believe how much and how fast our industry is changing. Who would have thought that we would move from buying tangible real estate assets to making purchases in the extended reality or XR, the so-called real estate metaverse?
Already in the real estate metaverse, buying real virtual properties with cryptocurrencies and tokenization have become the industry buzzwords.
Here in Hong Kong, Animoca’s Ethereum-based The Sandbox has signed up multiple local partners from the entertainment, professional services, finance, real estate and the gaming sectors to create a mega city, a virtual Hong Kong cultural hub.
The question is, how much do people and companies that are considering this new way of buying and investing actually know about the details of what they're investing in.
Tom Gaffney
To understand more about this, today we're joined by Mr. James Wong, who is here to help us answer some of that, and to understand more about these new concepts. As an executive director of both Hong Kwok Land Investment Co. Ltd and the Chinney Group, he's both an industry leader and an expert in the field. After growing up in the U.S., Canada and Hong Kong, James graduated from the University of Washington. He went on to gain a Master's degree in information systems engineering from the Florida Institute of Technology and a Juris Doctor from the University of California, Hastings College of Law. Before joining his family business in 2010, James held positions as a lawyer at Toyota’s eDiscovery team in California and a tax lawyer at Baker and McKenzie in Los Angeles and Hong Kong as well as at PWC in San Francisco.
Wow! So, James, what an impressive background you have and we're just so lucky to have you to join us today on CBRE’s Real Talk podcast. Welcome.
Tom Gaffney
Let's dive right in, James. So I'm sure virtual real estate and virtual currencies are still a mystery to many people. Would you mind starting with an overview of what they actually mean?
James Wong
It's important to keep in mind that virtual real estate and virtual currencies are two separate things, so let me approach these one at a time. Virtual currency, sometimes called cryptocurrencies, or sometimes even called digital currencies. And we can get into the differences on those later if you'd like, are basically ways that people are talking about making payment systems easier. And to some people you hear of the words bitcoin, Ethereum, even like Solana and AAVE. These are all basically different ways of breaking apart our money system and using different features of money and put it into the digital realm. It’s part of the digitization that you see of our overall economy right now. If you're in a digital economy, kind of forking over a hundred dollar bill is not practical. Credit cards are one way, debit cards are another way. Then, banks and Visa, Mastercard get involved. Cryptocurrencies are kind of a way that it's kind of like a pure to pure way of passing currency between people.
Now, currency. You know the old definition of money, right, it's a store of value. It’s an intermediate of exchange. It's a way of doing accounting. Digital currencies tend to challenge the ways that we think about money.
Virtual real estate is a different thing. So, virtual real estate actually has been around a lot longer than people think. Um. Way back in the ‘90s, there was a game called SIM Life, S.I.M.- Life, where people talked about sort of going online and then having an avatar and then living your life through this avatar. From SIM Life came this novel called Snow Crash by a guy called Neal Stephenson, and in Snow Crash, the people in the novel led a life that was online as well as a life that was offline, and the online life was way better than the offline life. And, so basically virtual reality, is virtual Real Estate, is a way of trying to capture that sort of online life, but instead of using avatar, people are going to try to be real.
And the reason why I say it's not as cutting-edge as people would like to think is because actually anybody who's been a gamer, if you've been in the world of Zelda, If you play Fortnite, Um, In fact, League of Legends, or one of those other ones, there's entire worlds in there that are very, very similar to what people are talking about the metaverse.
Tom Gaffney
Thanks, James. In your view, you know, what role can real estate metaverse and real estate tokenization play in our industry.
James Wong
So again, these are two separate issues. Let's begin with real estate metaverse.
Tom Gaffney
Both of these have one thing in common, is that these are very hot topics. Everybody has a bit of fomo involved, right? The fear of missing out, so there's like you know, I need to get into that thing. Anyway, real estate metaverse, you can hang on. The virtual currencies, you can probably dip your toe in it. So, in the real estate metaverse, the big problem is that it's a digital world. Which world you walk into is going to be different for everybody. The Facebook metaware is going to be different than if Google sets one up. The Google, Apple, and Apple's gonna set that one up, and then all these different. You know if you're currently in Pokemon World right now, and you know there was a time Niantic created this whole Pokemon craze, which world is going to be the one that everybody is going to be in Sandbox? You know you mentioned another one.
It's not clear who the emerging winner is yet, and so the way you think about this is you're in a video game and in a video game, you know you can spend money and can buy stuff, right? I think that's probably the best way to look at real estate in the metaverse. It's just stuff you can buy inside a game. Um, it's a real life game. I mean there's not like you know you have to go and defeat the boss, or you know you have to go and find this treasure. It's a world and it's kind of looking like a video game and you can spend some money inside it. That's probably the best way to look at the real estate metaverse.
James Wong
Virtual currencies, on the other hand, um, tokenization is a way of doing finance that is, and I would say an additional way of doing finance, particularly in the real estate sector that is beyond our regular fixed income, regular corporate lending, our regular fund raising and shares. I think what is happening in the tokenization of finance is we're taking digitization of finance into a different level. It's not going to be the usual guys, um, they are controlling the, let's say the doors to investment anymore. And what virtual currencies would defy, what tokenization does is it kind of democratizes finance in a certain way. But you know with democratization comes risks as well.
Tom Gaffney
James, I've got a question on tokenization in a second. But can I just jump back to the Metaverse. Man, you and I have known each other for a long time, and we understand how real estate in the real world is to our value through scarcity of supply and increased demand. How is that going to happen in the Metaverse?
James Wong
And it doesn't. And I think that's one of the big problems, right? You have basically, so the metaverse is just basically software, right? You have, in theory, somebody who's capable of creating infinite amounts of real estate. What they're trying to do in places like the metaverse, uh, Meta, you know the Facebook metaverse, Meta, is they're saying that well, what we're going to do is we're going to control the gateways. If you come in, everybody's going to come in through the same gateway. And because you're coming through that gateway, I'm going to sell you billboards, so Nike can go and advertise, but everybody's walking through that same gateway. So the way to think about it is, I guess, a landing page, you know on a website. And so the metaverse per se is kind of like, at the moment, a bit like buying banners on web pages.
But in terms of what you're saying, the way that we traditionally think about real estate being a finite resource. Yeah, that's not true. That's not real.
Tom Gaffney
Thank you. That a great way of sort of summarizing how to derive the value or not.
Just going back to tokenization. Can I ask you? Do you think real estate tokenization will become a mainstream approach to investment?
James Wong
Oh, very much. So our own company, Hon Kwok is about to launch a token. So what is a token? Let’s go there, okay?
Okay, so basically a token is a way marking that you own something, and that can be either equity or that could be debt. Just like a piece of paper. In the olden days, you know, I have a share of stock where I have a bond. Well, now we've got a digital version of this and that's a token.
So the token, the reason why tokens are interesting, and the reason why people are moving to them is two reasons - number one: people aren't as much into carrying around paper anymore. Number two: the token itself offers ways of making payments. So, let me give you an example.
James Wong
When you take a look at, um, there's a New York building right now. It's the first building, I think it's in Harlem somewhere. It's the first building to be listed on a public exchange in the United States. That's only one building. It's an office building, okay. Then you take another thing, which is in the United States now, you can get a mortgage using cryptocurrency. I think it's the Ethereum-based. I don't think it's Bitcoin-based. I think it's Ethereum-base, but there are actually lenders which will lend you mortgages based upon cryptocurrencies, which is I guess it's simplified, it is way oversimplified, but it is the simplified way of looking at cryptocurrencies. It's another foreign currency. It's like the Japanese Yen, or the Swiss Franc, or you know the Euro. It's just another currency conversion, way more volatile. Okay, a half a percent movement in the Yen in a day is gigantic, a fifty percent movement in cryptocurrencies in a day is normal, but you know some people like to take that risk.
James Wong
Okay, so what we're beginning to see, and I think what's going to be in the very near future is the merger between these crypto lending and sort of individual small property finance, merged together. And the way that crypto or the tokenization is going to make that happen is either, if it's going to create these ways of doing finance that is not currently possible.
Like for example, we, as a company, are thinking about creating a token that is like a debt. So, instead of issuing a debenture, which is a piece of paper, we will offer investors a choice between, they can take - I'm just going to make a number up - four and a half percent, nominal, and they can take that in what we call Fiat, which is regular Hong Kong dollars, or US dollars, or they can take it in Bitcoin or Ethereum, in which case every half year, we will pay them a fixed amount of Bitcoin and Ethereum, and then the risk is on the investor, right. They will either get four and a half percent currency, which they have to choose on day one, or they take.12 bitcoin. And if they take .12 two bitcoins, that can be either worth four and a half percent or forty five percent, based on the volatility. Right. And that's only possible in the token world. We can't do that on paper. It doesn't work.
Tom Gaffney
Well, so there could be big swings. Big upside as well.
James Wong
Yeah, Yeah, so you know it, Uh, I try not to use this analogy too much, but people say that some of these finance instruments are a bit like going into a casino and gambling. Okay, yeah, we try not to do that because when gambling you lose your capital in these kind of situations we try very hard not to lose capital.
Tom Gaffney
Yeah, exactly.
James Wong
The only thing we're screwing around with is the income, right?
Tom Gaffney
And how do you think that this will take shape in the near future? I mean, do you see this sort of rolling out imminently?
James Wong
Oh, definitely, I mean, it's happening everywhere. I think, Um, the situation in the Ukraine. I, you know, hate to bring up a war in all the way over in Europe but what happened in the war in Ukraine, is you're watching kind of two very interesting wars going on. You have the war on the ground, and then you have the war in currencies. Basically, the United States and the rest of the world have basically declared this war against Russia, with all the sanctions with the sort of oil cut-offs with, you know you're watching all kinds of revenge. I mean, the most reason why I watch, which is starting to get a little bit ridiculous, is that the Boston Marathons, I live in, my family lives in Boston. The Boston Marathon recently banned any Russian from running in the Boston Marathon as part of sanctions.
Tom Gaffney
Even getting into sport now. That's a bit of a worry.
James Wong
Which is kind of yeah. okay, yeah, yeah. but anyway, so what's going on is you're watching a currency war fight. And you're watching Russia. And the reason why China, um. they're sort of kind of playing with each other is because there's enough of an economy outside of Western Europe and North America, that Russia and China are really thinking about creating a different way of doing business with each other that do not involve the US dollar. Okay, and people always talk about China not joining the West in this, but I remind them Mexico, which just in North America, India, Turkey, are also not part of this, you know brand coalition sanctioning Russia, and it's because these countries are actually sort of interested in forming a different way of different currency world that doesn't involve the US Dollar.
Now it's not clear whether, for sure it's not going to be the Ruble, it's probably not going to be the Yuan, it's definitely not going to be the Rupee. Okay, so how do these guys transact if they don't transact in US dollars? And one very easy way of doing this is using stable coins in the crypto world, so in what happens in the stablecoin world is that, there is a coin that's issued in the digital realm that is backed by one US dollar, or you know ten Yuans or fifty Rupees, whatever it is.
Right, and I really think that in the near future we're talking, in the next two or three years, there will be a digital currency that's basically funded by these other big governments that are trying to do an end run around the US dollar.
Let me kind of make one other point about tokenization. I said earlier that there's a difference between digital currency and cryptocurrency. And the difference is that the cryptocurrency world is a bit more libertarian, it’s decentralized. Nobody's in control. Everybody kind of votes just with their dollars. There's not a bank. There's not a you know Federal Reserve that actually controls how the movement of the cryptocurrencies move around.
Digital currencies, on the other hand, are government-based currency, so instead of issuing a hundred US dollars in a piece of paper, they're going to issue a hundred US dollars in currency but it's still controlled by the Federal Reserve. Okay, and different banks right now and different Federal Reserves are talking about creating these kind of digital currencies.
China, the digital Yuan that you heard about in China, is a form of digital currency, but it's not cryptocurrency because it's not decentralized.
Tom Gaffney
Thank you, James. That really clarified a lot of questions a lot of people have had around this topic. I guess you know, finally, I mean, do you have any tips for people that are looking to venture into this space or want to move and invest into this area? What would be some of the advice that you would give them?
James Wong
Okay, so the Metaverse is kind of new. Let start with digital and cryptocurrencies. There are tons, you can go from Tiktok all the way down to, you know, there's lessons from places like Blockgeeks. I recommend a website if you're just curious about Cryptocurrencies, called Rocket Fuel. They have a really fun way of trying to explain what's going on with Crypto, and you can also from there, get a little bit of the feel for what digital currencies look like.
So you know what would happen in a world where the money is continued to be controlled by Federal Reserve, or in a world where there's no Federal Reserve and the money just move around freely? Okay, and Rocket Fuel talks about that issue in a very interesting way.
There's a guy called them Robert Kiyosaki, Um, who used to do the series called “Rich Dad Poor Dad” way back in the ‘90s, and he's partly responsible with Rocket Fuel, so it's a very libertarian event. I’m looking at it. I mean, if you're interested in looking at this, I will highly recommend that website to start.
If you're at all interested in dipping your toe in the water, coinbase, Um, I won't use binance, but probably coinbase, even FTX is worth thinking about. Coinbase itself has a large number of tutorials that talk about what cryptocurrency is, how you invest in it.
You know, you throw a couple of thousand bucks in there, is probably, a fun way of participating in the cryptocurrency world.
In the Metaverse side, Um, I would actually think of it like you're playing a video game, right? Almost every video game, Candy Crush, being one. You start playing Candy Crush, you just start running up money through there and metaverses are the same, So no, I think at the moment, if investors are looking at the metaverse, think of it as you're just playing a video game and throw some money in there as you would do in a video game. Don't expect any returns whatsoever.
Tom Gaffney
And then, I guess in the tokenization I guess you know, it still relatively new but it's coming along but I guess you are saying don't bet your house on it.
James Wong
I mean the one area we haven’t covered, Tom, is NFTs, the Non-Fungible Token. So, the Non-Fungible Token are interesting. So what is it? Not only have we started digitizing real estate and digitizing currency, we're now digitizing art, and the NFTs is interesting in the art world in the sense that it's a different medium for artists to sort of sell creative products. And I would probably say that on the token side, um, it’s the one area that I don't read very well because I'm not really very much in the art world. But if you're an artist and you're looking at NFTs, you know whether you're a painting artist, you know what they call it visual artist? a sound artist? You know, a reporting artist? or even these days they have kinds of different digital forms of art.
The NFT is an interesting world to take a look at, and the valuations there are about as clear cut and easy to understand as the art world in general, which is kind of fine because people who understand that world understand that kind of pricing. And that maybe an interesting place to take a look.
James Wong
And that might be an interesting place to take a look.
Tom Gaffney
That's great. Well, look, James, that's about all we have, the time for today, but I just want to say a huge thank you to you. Thank you for sharing your fantastic and deep knowledge in this subject. And I wish you all the best with you know, your company and your token.
James Wong
Oh, thank you. thank you. Thank you for inviting me for this.
Tom Gaffney
We sincerely hope we can get you back on the show any time the months to come once it's done. Thank you.
James Wong
Anytime!
